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Controlling Operational Costs

Written by Kevin Roberts

Let’s be sure we understand the essentials of fleet vehicle operational costs and how they can best be managed. Basic economics teaches us that we can’t afford all we desire, so we have to prioritize and make decisions based on relative importance. Prioritize and decide.

We all want new vehicles that never breakdown, that get 40 miles per gallon, while hauling 4 tons of “stuff” uphill, and that can be maintained for $10.95 per service (every 10,000 miles). One of our problems is that not only do we desire such things, we have companies who cater to our desires by promising these things.

I recently read an article in Master Technician magazine, a great magazine, about a performance upgrade that stated, “The great selling point of a performance air intake system is the fact that there is no downside,” said the national sales manager for the intake manufacturer. “With our intake systems, you do not give up something to get something. Performance filters offer lower restriction for better air flow and greater efficiency.”

Pardon me, but to my knowledge, the laws of physics have not been repealed. If there is a gain in airflow there must by something given up to allow that gain. A filter with a certain amount of area can only flow so much air unless the holes in the filter are enlarged, which means a lowering of efficiency. (Not airflow efficiency, but filtering efficiency).

In this case, engine life is sacrificed because more dirt is allowed to enter the engine. You can maintain efficiency and increase airflow, but the physical size (area) of the filter must be increased. This means physical space in the engine compartment must be sacrificed. On some vehicles, this may be no problem, but on others it is.

My concern is the blanket statement by an overzealous salesman that something can be gained without cost. Whenever I hear this kind of salesmanship, red flags go up. This is a paradigm that I have developed over the many years I’ve been in this industry.

The astute fleet manager, one who lives in the land of reality, will understand that choices must be made, and some things will have to be sacrificed for other things. Let’s start with new vehicles. We all love driving a new vehicle. It is tight, responsive, comfortable, and it smells good. If you have unlimited funds, you can drive a new vehicle; it’s called a rental. Turn it in every day or week and get a new one.

We want a dependable rig. You can have that, too. Hire a second shift and do a 2-4 hour inspection, maintenance, and service procedure for each 8-hour day shift. You want fuel mileage? You can move your vehicle with a really small engine, with the proper gearing, and if you drive only 40-45 mph, your fuel economy will be phenomenal. But you will be paying your driver for all the extra road time (at least the drivers who don’t quit).

Need to haul stuff? There’s nothing that can compete with a semi tractor-trailer for interior space, and while you’re at it, you can get a 1,000 horsepower diesel engine that will pull the Rocky Mountains like they’re Kansas flat land. You’d better also like single digit fuel economy and the six-figure purchase price.

Like long maintenance intervals? You are in the driver seat on that one; take it in every 20,000 miles and reap the benefits of reduced maintenance costs. This also promotes new vehicle ownership.

Still with me? In reality, there are choices to be made and economic consequences to be enjoyed (or suffered) because of those choices. As the fleet manager, you make or at least influence the choices being made. If you forget everything else in this article, remember this: There is no choice between good and bad, there is only a choice between bad and worse.

Is bad fuel economy something you can live with because you need to haul large loads? Are high maintenance costs something you can live with because vehicle dependability is critical? Are you willing to spend large dollars on new equipment to make your drivers happy? It is axiomatic that the better your fleet is managed to do one thing, the worse it will be at something else.

If you read the excellent article by Scott Coy in the May-June 2007 issue of Police Fleet Manager, you were likely surprised that the Tahoe came in at a lower LCA (lifecycle cost analysis) than did the CVPI. This is what happens when actual numbers are used rather than the “swag” method, which is based on undeclared assumptions and unsupported paradigms. In his article, Coy differentiates between fixed and variable costs, and this is an excellent way to examine the overall cost of operation.

An additional way exists to compare different fleet costs. In a nutshell, the final number is the same: Operational cost per mile for a rig that can perform the needed function. We will make a slightly different distinction between two kinds of costs and see where that leads us.

Operational costs include many factors: purchase price amortized over the life of the vehicle, including interest (if any) and setup costs; fuel costs; maintenance costs; repair costs; insurance costs; administration costs, including maintenance record keeping and driver training; the cost of downtime, including driver time and lost productivity; the cost of liability exposure if the maintenance and service procedures are not done properly; and the cost of restructuring the system in response to an “event.”

Anyone familiar with fleet management will immediately recognize the first two items as the most essential to fleet operation and last two items as the most important to be avoided.

If we look at the four in the middle, we can see them as perhaps not inherent to, but necessary for, good fleet management. Let’s divide this eight-part list into two groups. Let’s call the following primary costs: purchasing, fuel, downtime, and risk.

The secondary costs include maintenance, repair, insurance and administration. The first two costs, while unavoidable, are manageable. Since the spike in fuel prices, fuel costs have varied dramatically, and there is little that can be done by fleet managers to predict where costs will be when the yearly budget must be done. What can be done is to maximize fuel economy and by seeing fuel costs as one of the large dollar items to be managed by the small dollar items.

The last two costs are to be avoided at almost all costs! The means by which we manage them (and this is the key) is the second set of costs. Think of the first set as the large dollars and the second set as the small dollars. We can create difficulties for ourselves by failing to recognize the relationship between these two different types of costs.

If you are dealing with a bean-counting oversight committee that views all expenditures as similar, i.e., spending money is bad, not spending money is good, I feel for you. If you want to be an effective manager of your resources, you need to develop a paradigm that recognizes the difference between money well spent and money poorly spent.

I think replacing a fleet vehicle at less than 100k miles is generally money poorly spent. There are exceptions to this, but these should have compelling reasons to support them. If it’s your personal car and (as Jay Leno says) you’re a member of the “more money than brains club,” more power to you. Understanding the relationship between primary and secondary costs can dramatically improve fleet operations. By doing our homework, we can fine-tune our operations and get the most for our budget dollars.

Kevin Roberts is the president of Roberts Repair in Rhinelander, WI. The company has specialized in emergency vehicle maintenance since 1989. Roberts is an ASE Certified Master Automobile and Master Truck Technician. He can be reached at ksroberts@charterinternet.com.

Published in Police Fleet Manager, Nov/Dec 2008

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